Where is the US economy headed?

thanks for your research , okie !
it does throw a little light on the money transfer .
i wonder if the names of those initiating the transactions will ever leak out .
there is the possibility that some big foreign investors/countries got antsy and attempted to repatriate some of their money - but where were they going to put it ?
i doubt that it is was just american investors causing this massive withdrawal attempt .

since the U.S. will need to bring lots more money in from foreign investors , the treaury may well want to avoid giving out the names .

some financial "gurus" claim that there is far too much money sloshing around in the world and that just like having too much water in a leaking boat , a wave could tip it over and sink the whole boat - and its unfortunate occupants .
perhaps some bailing and plugging of leaks might be appropriate - but what do i know - and even if i did , it wouldn't make a difference .

okie wrote :



i suppose it's always been that way and will continue that way as long as the world keeps turning .

looking back throughout history , there have sometimes been "popular" movements that have temporarily seized power (europe's peasant revolution might be an example) , but usually a small group will emerge again to wield power .
hbg

Hawkeye 10. Your proposal is close to that of Andy Kessler's. I think it has a lot of merit. Note below




OPINION FEBRUARY 10, 2009, 10:48 P.M. ET Why Markets Dissed the Geithner Plan

By ANDY KESSLER
One of the cool things about being Treasury Secretary is that you get your signature on dollar bills, giving them authority, defending their honor. Timothy Geithner's plan to save the struggling banking system probably does the opposite, throwing good money after bad to a banking system struggling under the weight of its own mistakes. The markets don't like it. The Dow dropped 382 points while bonds rallied as a port in a continuing storm.

Mr. Geithner announced a three-point plan yesterday to "clean up and strengthen the nation's banks," and made a vague declaration to use "the full resources of the government to help bring down mortgage payments and to help reduce mortgage interest rates." Unfortunately, those are conflicting plans. Hence the markets' skepticism.

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The Treasury secretary seems stuck on keeping the banks we have in place. But we don't need zombie banks overstuffed with nonperforming loans -- ask the Japanese.

Mr. Geithner wants to "stress test" banks to see which are worth saving. The market already has. Despite over a trillion in assets, Citigroup is worth a meager $18 billion, Bank of America only $28 billion. The market has already figured out that the banks and their accountants haven't fessed up to bad loans and that their shareholders are toast.

Second, Mr. Geithner wants to use up to $1 trillion to back new car loans, home loans and student loans. That's noble, but incredibly market distorting. Who gets these loans? Will banks be forced to loan to those with bad credit? Who sets loan rates? Doesn't this just set up another credit squeeze when government guarantees are lifted?

What we need are healthy banks with clean balance sheets and enlightened risk assessment to provide consumer and business loans that will generate returns to shareholders. And to this end, Mr. Geithner wants to create a public-private partnership to buy toxic securities off bank balance sheets. This is a truly worthy goal, but I don't think his plan for doing so will work. Banks are more than able to sell these toxic loans today. They just don't like the price.

The first iteration of the Troubled Asset Relief Program (TARP) last year was to buy these bad loans and derivatives. It didn't work. Nothing was bought when it became clear that paying face value was a taxpayer giveaway to banks, but paying market prices for this stuff would cause huge equity write-downs, wiping out banks which would be left with negative equity and effective insolvency.

The next round of TARP injected money onto bank balance sheets first, boosting their equity so they could absorb the write-downs to come when the toxic junk was bought later. It didn't work. The $45 billion to Citi and Bank of America wasn't nearly enough. Instead, $306 billion and $118 billion loan guarantees were extended to cover the bad debt, which unfortunately, the market believes still weighs down banks' balance sheets.

Now with TARP 2.0, renamed a friendly Financial Stability Plan, the idea is to entice private capital to buy these bad loans and derivatives in an effort to set the "market price." But Mr. Geithner hasn't solved the dilemma of banks not wanting to sell and become insolvent. Moreover, no one is going to buy these securities ahead of Mr. Geithner's action with the "full resources of the government" to bring down mortgage payments and reduce mortgage interest rates. Lower mortgage payments means mortgage-backed securities would be worth even less. Six months to a year from now, big banks may still be weak and the ugly "n" word of nationalization will be back.

Mr. Geithner should instead use his "stress test" and nationalize the dead banks via the FDIC -- but only for a day or so.

First, strip out all the toxic assets and put them into a holding tank inside the Treasury. Then inject $300 billion in fresh equity for both Citi and Bank of America. Create 10 billion new shares of each of the companies to replace the old ones. The book value of each share could be $30. Very quickly, a new board of directors should be created and a new management team hired. Here's the tricky part: Who owns the shares? Politics will kill a nationalized bank. So spin them out immediately.

Some $6 trillion in income taxes were paid by individuals in 2006, 2007 and 2008. On a pro-forma basis, send out those 10 billion shares of each bank to taxpayers. They paid for the recapitalization.

Each taxpayer would get about $100 worth of stock for each $1,000 of taxes paid. Of course, each taxpayer has the ability to sell these shares on the open market, maybe at $40, maybe $20, maybe $80. It depends on management, their vision, how much additional capital they are willing to raise, the dividend they declare, etc. Meanwhile, the toxic assets sitting inside the Treasury will have residual value and the proceeds from their eventual sale, I believe, will more than offset the capital injected. That would benefit all citizens, not the managements and shareholders who blew up the banking system in the first place.

Mr. Kessler, a former hedge-fund manager, is the author of "How We Got Here" (Collins, 2005).
****************************************************************

Note- Hawkeye 10--that the taxpayer is benefited!!

I think the only way to recover from this crisis (long term, meaning greater longer than Obama's 4 years) is for neither the government, nor a federal or private organization to "help" or economy recover.

Choosing to do nothing IS an option here.

Maporsche you wrote:

This 2.5 trillion in spending over the last 4 months has pretty much destroyed any chance of saving Social Security, Medicare, Medicade, and our health care problem.

Obama has succeeded in doing what republicans have tried to do for years. Social Security will be gone w/in 20 years, there will be NO money to fund it, AND we'll have reached the limit on our credit card.

end of quote.

Entitlements and the interest on the federal debt, piled on by the 2.5 Trillion dollars, will make it impossible for the US to return to prosperity for many years.


Obama is hoping that the largesse received by firms that have been pre-selected toThis 2.5 trillion in spending over the last 4 months has pretty much destroyed any chance of saving Social Security, Medicare, Medicade, and our health care problem.

Obama has succeeded in doing what republicans have tried to do for years. Social Security will be gone w/in 20 years, there will be NO money to fund it, AND we'll have reached the limit on our credit card. rofit in this stimulus will provide enough money( the mother's milk of politics) to win more seats in 2010.

Since the stimulus will not work, it is likely that 2010 elections will reprise the 1994 elections when Clinton found that his stewardship and his attempts to nationalize Health Care caused a Republican Renasssiance just two years after he became president>

Good grief, ci, I am surprised at your question. The answer is obvious. It is us, the American people, the engine of free enterprise that can be unleashed, given the correct circumstances of the right playing rules and competitive abilities in the world market. I have been pointing this out many times. Central planning does not work. Read Basic Economics by Thomas Sowell. The economy is the allocation of scarce resources, and just how efficient that happens will determine what happens to us. Government is unable by definition to know how to do that efficiently. It has to be us, ci.

genoves, they already are. I don't think this is common knowledge, but it is happening as we speak, in a rather remarkable manner, see the line going straight up at the end of the graph. I pointed this out a few pages back, warning of impending inflation, but some discounted it as not likely, but I think it is inevitable at some point, for at least a couple reasons.

The best book in Economics I have ever read, Okie. If you like Sowell , Try Race and Culture by him. Cicerone Imposter does not understand the basic ru le of Economics. You wrote it. THE ALLOCATION OF SCARCE RESOURCES.

Obama obvioulsy does not believe that RESOURCES are SCARCE.

speculators ruining the economy ?
it's not their fault - it's in their genes !

http://news.bbc.co.uk/2/hi/health/7880860.stm



so stop blaming those poor people : IT'S NOT THEIR FAULT !

(i liked it better when flip wilson said : "the devil made me do it" ) .
hbg

When our banking system doesn't have the money to lend out to businesses and consumers, the only option is for the feds to make sure credit and liquidity is available. Without it, our economy will continue to spiral into a depression. Even for conservatives, believe it or not!

The economy involves the allocation of scarce resources, which have alternative uses. The free market of capitalism helps make it the most efficient allocation possible, given the realities of human nature and other natural principles that govern the world and how it works. One of the reasons liberals think capitalism is morally wrong is that they associate capitalism with profit, or greed, when in fact the free market also involves alot of loss, which tells the market what people do not need, thus directing the allocation of scarce resources to those things that are needed and wanted.

The problem with central planning is that although it may be conceived as working on paper, it has no check or balance to the system. For example, by the time the central planners determine something is needed, and the bureaucrats order the process into motion, the raw materials are procured, and the products are manufactured or produced, or the services are provided, a number of things happen, including too many or not enough are produced, or the product or service is antiquated and outmoded, thus wasting all of that effort and materials or resources. And it very well may be that the stuff deemed to be needed was never needed at all, contrary to what the central planners thought in the beginning. Again, we are talking about scarce resources. Meanwhile, what is actually needed is in short supply or non-existent, which often leads to great suffering, examples abound in communist societies where millions of people may actually starve to death.

Anybody with any sense can thus use the above principles to recognize that the stimulus plan is a microcosm of an entire economy working at the direction of central planners. Since it will not dominate the entire economy, it will not totally manifest itself for what it is, although it remains to be seen to what extent the manifestation will reveal itself. However, it is clear that the 800 billion or whatever it is, that portion of money could have been allocated into private enterprise, thus bringing about a much more efficient use of the money and resources.

If the stuff provided is an essential government service, then it can be argued that the money spent is valid, however, it is clear that a very large portion of this pork is not money that has to be spent by the taxpayers, and make no mistake, the taxpayers will pay for it in some manner, if not by taxes, then by future inflation that destroys their assets, essentially transferring their bel0ngings or wealth to the government to redistribute or allocate the resources. And again, this is a very inefficient way to do it, thus leading to a downward trend in our standard of living.

Really, the principles discussed are applied every day in our own lives, in our own budgets, and if we have somebody else telling us what we need and what to spend our money on, you can imagine the mess things would become.

I am already hearing horror stories about what will probably happen to money allocated from this plan. This from bureaucrats in the National Park system.

Gee, the bureaucrats at the National Park System are now experts in finance?
ROFL

It doesn't take an expert to see a boondoggle coming over the horizon, ci. All it takes is some familiarity with projects in the works, how they are done, monies needed, priorities, and the bureaucracy - how it works, from past observation.

All you would need to know about this, you could learn by working somewhere where they told you, here, take this money, now spend it, and don't confuse us with details.

A boondoggle? Okay, tell us how and why? I'm sincerely interested in why the experts that Obama recruited and congress are all wrong. Really. You must be a super expert beyond what is being established now by Obama's finance team and in congress.

You must be some smart cookie, and I'm here to learn from you, the super expert, on our economy and how to fix it.

You don't need to be a "smart cookie"...just have common sense.

Unfortunately for you and your desire to learn...you can't be taught common sense. My dad always said "Everyone has common sense. Its just that most people don't use it"

Okay BTN, show me where I fail to show common sense in any of my posts on a2k?

I don't disagree with you, Okie, re bad decisions made at the end of the Bush administration. It is quite likely that there will be some poor choices made ahead. But the stimulous package and the next round of banking bailouts is going to happen whether we like it or not.
This thread appeals to all of 5 or 6 people. I am wondering if any one of yall would like to start a new topic re how folks feel this thing is working going forward. We would need to come up with a snappy title and tags to something other than "economics."
I am serious about this. Can I get anyone to nibble at doing this?

Walking a tightrope singing I'm in the Mood for Lerve sort of thing do you mean?

That's easy; call it something like "The Stimulus Plan, Will It Work or Not?"

Un un. New threads come, and new threads go. For all its faults, this is where you go on a2k for thoughtful economic commentary.